IRS representatives participated in several panels at the 33th Annual Forum Tax Withholding & Information Reporting Conference (11-12 October 2018) and the SIFMA Global Tax Reporting Symposium (16-17 October 2018), where they shared insights and responded to questions relevant for US and non-US financial institutions.
This blog summarizes the key messages communicated by IRS representatives during these significant industry conferences, that have historically preceded the issuance of new guidance and outlines the potential impact to non-US financial institutions.
Although a variety of topics were discussed during the respective conferences, the key takeaways can be condensed into the following categories:
Considerations in advance of the upcoming certification deadlines
With the 15 December 2018, FATCA certification deadline rapidly approaching, participants understandably requested clarification on certain pending items.
IRS representatives confirmed that:
- Financial institutions that de-registered from the FATCA portal prior to 22 July 2018 are not obliged to make a FATCA Responsible Officer (RO) certification and that this relief will be formalized in an FAQ; financial institutions that cancelled their registration on or after this date are required to make a certification within six months and may need to ask the IRS to re-activate access to the portal• Financial institutions that de-registered from the FATCA portal prior to 22 July 2018 are not obliged to make a FATCA Responsible Officer (RO) certification and that this relief will be formalized in an FAQ; financial institutions that cancelled their registration on or after this date are required to make a certification within six months and may need to ask the IRS to re-activate access to the portal
- The FATCA RO certification does not extend to branches in Model 1 IGA jurisdictions, even though the RO is not able to specifically unselect Model 1 branches when making the certification
- A FATCA RO certification and direct reporting to the IRS is required for sponsored investment entities in Model 1 IGA jurisdictions if they have accessed the status via the US Treasury Regulations (e.g. because that status is not included in the Annex II of the applicable IGA as is the case for Germany, Ireland, Spain, the UK and some others); the deadline for the certification is 31 March 2019 and the Sponsoring Regulations are expected to be finalized in the near future
- A registered deemed-compliant FFI in a Model 2 IGA jurisdiction must use the FATCA RO certification template for the status most closely matching its status under Annex II of the IGA; this would mean for example that Swiss funds qualifying as “certain collective investment vehicles” under Annex II of the Swiss IGA should use the certification for “qualified collective investment vehicles”
- FFI groups may only synchronize the FATCA RO certification deadlines for group FFIs with different registration effective dates by using the consolidated compliance group function.
In addition, IRS representatives indicated that “Swiss investment advisers”, according to Annex II of the Swiss IGA, may not be required to make a FATCA RO certification because the equivalent status under the US Treasury Regulations does not require a certification; it is expected that the Swiss authorities will clarify this requirement via an FAQ before the certification deadline of 15 December 2018.
Although the certification comments were focused on the upcoming FATCA certifications, IRS representatives also reminded QIs still due to make their certification that they must report as part of the QI RO certification the under-withholding identified during the review on a pre-curing basis; however, as the extrapolation will be performed based on post-curing results, QIs may want to upload an attachment with details about the curing as part of their certification.
The ongoing withholdable payment headache
IRS representatives confirmed that:
- They hope to issue burden reduction regulations before the end of the year that will provide permanent relief from the requirement to withhold on gross proceeds under FATCA, which would otherwise become effective 1 January 2019
- They currently do not intend to publish final regulations defining the term “foreign passthru payments”, which effectively defers the withholding requirements with respect to such payments indefinitely.
Other important points to note
- IRS representatives acknowledged that the 2017 FFI agreement is due to expire by the end of this year but they have not commented on the timeline for renewal.
- Faced with the fact that the deletion of Internal Revenue Code section 958(b)(4) could have the unintentional consequence of treating non-US entities (that are part of a foreign-headquartered group that also includes US subsidiaries) as controlled foreign corporations and thus as US payors subject to fully-fledged Form 1099 reporting, the IRS mentioned that they would look into it and appreciate further comments from the industry.
Many of these comments will be a welcome relief for non-US financial institutions as they prepare for their FATCA certifications and potentially contend with any necessary remediation efforts as a result of recent QI and FATCA health checks or periodic reviews. However, a lot of work needs to be undertaken to ensure ongoing FATCA and QI compliance as we approach the final quarter of 2018.